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Start-up funding may come under SEBI lens

Start-up funding may come under SEBI lens

The Securities and Exchange Board of India (SEBI) is concerned with the manner in which start-ups are being funded through unregulated entities and is examining the manner in which alternative fund-raising platforms and crowd-funding ventures can be regulated to bring in transparency and regulatory oversight in such deals.

A panel under T.V. Mohandas Pai, former CFO of Infosys was formed by the regulator recently. The start-up ecosystem has gained significance in India and the government is pushing regulatory bodies to create an investor-friendly ecosystem for such ventures.

Various mandates of the panel:

To ensure that market disruption does not come at the cost of investor protection and market integrity

The Committee on Financial and Regulatory Technologies will deliberate on financial technology solutions for widening and deepening of the Indian securities market through traditional and alternative platforms, including peer to peer lending and equity crowd-funding

Concerns that were raised recently:

The regulator was concerned with the increasing number of such entities in the market

Even recognized stock exchanges have raised a red flag over the mushrooming of such ventures

The regulator has even sent notices to many entities that act as platforms for funding start-ups or connecting them to the large investor community

The regulator has questioned the manner in which these entities help start-ups raise funds. Any violation would amount to organizing an unrecognized stock exchange and SEBI would be constrained to initiate action

Existing legal framework:

Issue of shares to more than 200 persons constitutes a public issue and needs SEBI approval

The cap was increased to 200 from 49 when the Companies Act was revised in 2013

SEBI has a provision under Section 28 of Securities Contracts (Regulation) Act, that allows the regulator to recognize such alternative investment platforms

Globally there are no uniform standards for registration of such investment platforms, at most places such platforms are regulated trading venues, which serve as an alternative to trading at public exchanges

CS Exams

Student Speak

The mains test series at Chanakya ias academy was very helpful during my mains preparation. The quality of questions and the evaluation done by the teachers is at our with the standards of civil services. The model answers also provide a detailed picture of the important topics for mains examination.